Published November 10, 2022
Brands spend $400 billion a year on digital advertising. Most of this is spent on new customer acquisition. The biggest beneficiaries of the advertising spend are the Big AdTech firms like Google and Meta, and increasingly Amazon and Tiktok. Brands are in a competitive race to acquire new customers and Big AdTech acts as the gatekeepers to digital customers. Attention is auctioned as clicks cost increasingly more each year. For many brands, the CAC (customer acquisition cost) has been rising 40-50% annually. And yet, brands feel they have little or no choice but to continue spending because they have few alternatives to reach out to new digital customers. The result: brand profits are taking a hit, and Big AdTech amasses even more power with their profits.
What is surprising is that brands refuse to acknowledge that half of their digital spends are being wasted. Either wrong customers are being acquired (they churn out quickly) or dormant customers are being reacquired (double payment). Marketers overseeing the advertising budgets find it easier to pay Big AdTech than take measures to measure and prune this AdWaste, which at an industry-level accounts for $200 billion annually (and is growing at 25-30% CAGR). Even as regulators discuss trying to curtail the power of Big AdTech through regulation, they are not getting to the root of the problem: lazy marketers who instead of building better and deeper relationships with existing customers have become collection agents for Big AdTech.
There is a better way to spend the $200 billion AdWaste. Doing so will solve the profits problem for brands and also automatically reduce the power of Big AdTech. Marketers and markets are the solution to the superpowers of the likes of Google and Meta, not government intervention through legislation and judicial action. Only when CMOs and CEOs understand that it is in their interest to understand the AdWaste their company is suffering and realise that there are smarter alternatives which can increase revenues and profits will the money and power shift happen.
For martech companies, the $200 billion AdWaste can become the new pool of money which multiplies their TAM (total addressable market). Today, most martech companies play in the 10% spending pool (about $50 billion). Newer solutions can substantially expand the available market. But to do this, it is not about adding new features to the martech stack but about taking a very different approach with a fundamentally new insight: attention and data are upstream of transactions, and “Atomic Rewards” (micro-incentives) can help marketers get more attention and data. In other words, persuade marketers to pay their existing customers rather than Big AdTech.
Martech companies thus need to offer solutions that enable marketers to build “hotlines” to their customers, rather than optimising transactions. Hotlines are being made possible because hitherto one-way push channels are now becoming two-way conversational and commerce platforms, enabling conversion funnels to move away from the properties (websites and apps) and closer to the customers. It is the hotline which can help marketers improve retention, repetition (loyalty), referrals and reactivation (as an alternative to reacquisition).
Hotlines are thus the antidote to AdWaste, and a $200 billion opportunity for brands and marketers.
Email 2.0 and Loyalty 2.0
Marketers direct most of their digital budget towards new acquisition because they are unable to persuade their existing customers to return for more, and bring their family and friends. This is because the push messages they send are being largely ignored. The push channels available so far have been email, SMS and notifications (either via the app or the browser). Most of the messages sent via these channels are ignored. Emails all tend to look the same: a single image with an offer and an invitation to clickthrough to the website, app or landing page. SMSes are constrained by their cost, length and format (160 characters of text). Notifications are easily blocked and there is no way to bypass the disconnection.
As a result, brands have had very limited options to bring their customers back to their properties (websites and apps) for transactions. Marketers know that only a small fraction of their customers will consume their content and hence the only solution for revenue growth is to widen the top of the funnel, which means continuous, competitive and expensive new customer acquisition. So, even though they have a sense that a significant chunk of the new acquisitions are flawed, the belief is that there is no alternative.
Two disruptions are bringing about change. The privacy backlash and actions by Apple and Google are making it harder to capture data and create targeted profiles. Witness the decline in efficacy of advertising on Facebook in recent times. This is making marketers look for newer acquisition options – which is where the likes of Amazon, Tiktok and Pinterest are rising. The second change is even bigger and less well understood – interactivity is coming to the push channels. With AMP, emails can now be used to complete many actions, rather than just work as a source for clicks to landing pages. (I call this version of emails as Email 2.0 because it is a huge leap forward.) With WhatsApp, brands can have two-way engagement leading to conversational commerce. The common underlying theme: the conversion funnel can move closer to the customer, right inside the communications channels. The push messages are thus fuelling the creation of a “hotline”, two-way engagement without the need to exit the channel. Email’s openness, lower pricing, and lack of a centralised controller give it a natural advantage over WhatsApp in the long-term.
A third disruption can completely change the game for marketers. Atomic Rewards, which can tokenise attention and data (what I term as Loyalty 2.0), provide the lubricant for increasing conversions. By bringing gamification and asset appreciation to non-monetary transactions, Atomic Rewards can provide marketers with the incentives they need to change and direct customer behaviour. Marketers can now conceptualise interactive emails in which they can offer not just in-place search, payments and form-fills, but also micro-incentives to get feedback, NPS ratings and volunteered (zero-party) data. All of this together helps with progressive profiling which in turn enables better personalisation of content and offers.
Hotlines, powered by Email 2.0, WhatsApp and Atomic Rewards, are the big revolution in brand-customer relationships. Instead of wasting $200 billion on ads that no longer work effectively, marketers can invest that money on their existing customers. After all, as every marketer knows, existing customers spend much more and can be great sources of referrals (zero cost acquisition) as compared to new customers.
Hotlines, as enablers of better brand-customer relationships, are the ores for marketers to mine future profits.
Once brands have got the hotlines in place with their existing customers, the benefits multiply. The brand-customer relationship becomes a friendship: when one speaks, the other listens. Customers know their time is now valued by the brand, thanks to the Atomic Rewards. The friction for commerce and other actions goes away: a search bar in every email can provide personalised search results with a single-click ‘Add to Cart’ button and perhaps even a payment option – all without having to leave the email. Customers can also provide feedback (NPS, for example) without a clickthrough to a landing page. Appointments can be scheduled (or rescheduled) right inside the email. EMI calculators can provide answers, insurers can provide quotes, airlines can offer seat selection, media companies can offer live news updates and stock quotes, job portals can offer instant resume updation – all within the safety of the inbox. Hotlines thus open the way for frictionless engagement and commerce, with the added advantage of points and tokens as a reward for actions.
For brands, removal of even a step and a few seconds from the purchase process can mean much additional revenue and higher customer satisfaction. An interactive Email 2.0 channel can offer a second line of communication to app-first companies who face the problem of ‘infant uninstalls’ from customers who have not had time to fully explore the app. Data collection now becomes a breeze for marketers – and with data comes the ability to personalise which in turn drives retention and repeat purchases. For brands keen to smoothen the customer journey, hotlines are the cornerstone for providing a friction-free experience to customers.
Just like Starbucks became the ‘third space’, the email inbox (and to a limited extent, WhatsApp) will become the ‘third property’ after the website and app for brands and customers to interact and transact. The advantage for brands is that the email channel is in their control: they can ‘push’ an email when they want, rather than waiting for a customer to come to their property. The combination of AMP and Atomic Rewards (Email 2.0 and Loyalty 2.0, respectively) is a giant leap in the evolution of the brand-customer relationship. Marketers who had ceded power to Big AdTech for their own conversions can now get it back with direct interaction channels with their customers without the need for intermediaries. By thinking “hotlines”, marketers can redirect the AdWaste towards their existing customers and Martech 2.0 solutions. New ideas like Velvet Rope Marketing (differentiated experiences for Best customers) can further multiply the revenues marketers generate from their existing customers.
Hotlines, not optimised ads, are the future of digital marketing and the crux of the new brand-customer relationship. $200 billion spent on customers rather than Big AdTech will make marketers the profit makers and multipliers. It will also delight customers and take marketing back to its roots: bring back existing customers for more, and make sure they get their family and friends – without the crutches of the omniscient digital intermediaries. Hotlines are the 10X idea – offering a magnitude increase in conversions, and a substantial increase in brand profits thanks to increased revenues without a concomitant increase in costs.
For martech companies, hotlines offer the way to stop playing second fiddle to adtech. Hotlines complement the brand’s properties, opening up a new front which is many times bigger for martech companies. The era of Adtech (new customer acquisition) is over; the coming age is of Martech (existing customer relationships). The time for hotline builders is here!